THIS WEEK'S MUTUAL FUND STORIES

In the 2000-2002 bear market, two groups of mutual funds not only didn't lose as much as their peers, but often delivered positive results. And many of these stock funds also have done reasonably well as markets have recovered.

Their secret? The ability to sell "short" -- that is, to make money when stock prices fall. This sophisticated investment strategy is common for hedge funds, but relatively new for mutual funds. Most retail funds are "long" only, meaning that they profit only when stocks are rising. That's where so-called long-short funds and cousin market-neutral funds come in, combining the two approaches with a goal of posting market-topping returns with below-market risk.

With bear market memories still painfully fresh, many investors are embracing these specialized offerings. But short-selling is a market-timing tactic that's difficult to pull off. This week's lead story, "The Long and Short of It," looks closely at long-short funds and market-neutral funds, and offers advice about using them in your portfolio.

In other stories, check out some new exchange-traded stock funds with their own unique style, read about funds that tie management fees to investment results, and see which fund companies have a big stake in the proposed merger of two telecommunications giants.

Plus, Paul Farrell tells investors to trade that tired fund for a do-it-yourself version, and Chuck Jaffe boils down boilerplate fund information you should know, on this week's Mutual Funds page.

Having the flexibility to make money in both good markets and bad ones is tempting, particularly now that the option is more affordable. Just be careful not to lose your shorts.

Jonathan Burton, investments editor

The long and short of it

Mutual funds that use sophisticated strategies to control stock-market risk are coming out from behind their hedges. See Mutual Understanding

Hedge-style funds take the spotlight

Mutual funds designed to make money whether stocks are rising or falling are gaining attention from retail investors and financial advisers, and two leading fund-rating firms are simplifying their search. See FundWatch.

Is the Big Board for your portfolio?

The merger of the New York Stock Exchange and electronic marketplace Archipelago Holdings is a milestone for stock trading, but individual investors might not want to rush a "buy" order for shares. See full story.

NYSE stock poses hurdle for funds

Owning 5% or more of NYSE Group Inc. shares could spell trouble for firms that sell mutual funds because it potentially could prevent their funds from executing trades via the Big Board without Securities and Exchange Commission approval, an advocate for fund shareholders says. See full story.

Silver is golden

Silver prices have broken through $10 an ounce to reach 22-year highs on speculation that a silver exchange-traded fund in registration from Barclays Global Investors may soon begin trading. See ETF Focus.

ETFs focus on growth and value

Financial advisers and individual investors are increasingly using specialized exchange-traded funds to enhance stock portfolios, and several offerings slated to debut this week could fuel the trend. See ETF Investing.

Funds shun performance fees

Earlier this year, Janus Capital Group Inc. introduced performance-based fees on some of its mutual funds as a way to better align the interests of fund shareholders and portfolio managers. But Janus is just one of a handful of fund companies to implement such a clear-cut reward system, despite their investor-friendly appeal. See FundWatch.

Bells ring up gains for funds

The combination of telecommunications giants AT&T Inc. and BellSouth Corp. may take months to finalize, but the deal will give an immediate boost to shareholders of some of the biggest diversified U.S. mutual funds and specialized telecommunications and utilities funds. See full story.

Telecom ETFs connect with Ma Bell

Shares of exchange-traded funds focused on the U.S. telecommunications sector got a lift from AT&T Inc.'s planned acquisition of BellSouth Corp., even though the two stocks moved in opposite directions. See full story.

Riding the market's big waves

Tobin Smith of Change Wave Research says the time to sell hot stocks is when all the good news is priced in for expectations down the road. See Personal MarketWatch.

Don't hedge; start a fund

Hedge funds aren't for beginners. You got to pay your dues, earn your stripes, get a track record. Most hedge managers get experience as mutual fund managers first. So here's how to set up your own mutual fund; how you can get the credentials to become a hedge fund manager. See Paul B. Farrell.

How to read a fund

Fund investors have questions, lots of them. Here are three particularly good ones I've received recently, the kind that probably speak for a wide range of investors. Enjoy. See Chuck Jaffe.

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